Sunday, September 21, 2008

Economic Externalities to Education?

by Andrew Gillen

Writing on the Vox EU site, Steven Yamarik, examines one of the main justifications for public funding of higher education, namely, that education results in positive spillovers or externalities. The basic idea is that educated people are not only more productive, but that they teach those around them to be more productive too.

If there are significant externalities, than the social return on education should be higher than the private return. The evidence shows that this is not the case.

The closeness of the estimates of the social return to the private return suggests that US schooling generates little to no external return.

Thus,

If there are reasons to subsidise education, they don't include economic externalities.

It should be noted (and Yamarik devotes to whole conclusion to this point), that there are other reasons to subsidize education. But it is nonetheless an important point that those reasons do not appear to include positive economic externalities.